2011 (3) TMI 536 - HC - Central Excise

Tribunal overturns department decision on excise duty, emphasizes duty pursuit over penalties.

The Order-in-Appeal overturned the department's decision to reverse deemed credit and penalize the assessee under the Compounded Levy Scheme for ... Notification No.58/97-CE dated 30.08.1997 - Reversal of deemed credit - Compunded Levy Scheme under Section 3 of the Central Excise Act, 1944 - inputs raised by the assessee were purchased from a unit which itself was governed under Section 3A of the Act and had not paid ad valorem excise duty, on account of liability for payment of excise duty having been discharged under the Compounded Levy Scheme - As under the compounded levy scheme the excise liability is based on the annual capacity of production and is not discharged at the point/time of removal but according to Rule 96 ZP, the declaration to the effect “appropriate duty discharged” will tantamount to false declaration - the Hon’ble Punjab & Haryana High Court in the case of Vikas Pipe vs. CCE, Chandigarh [2003 -TMI - 46733], has put to rest the issue involved by categorically holding that invoices certifying that inputs have sufficient and no further evidence to show discharge of duty is required - The appeal is dismissed Issues:1. Entitlement to deemed credit under Notification No.58/97-CE when inputs supplier has not paid appropriate Central Excise duty.2. Validity of reversal of deemed credit and penal action against the assessee under Compounded Levy Scheme.3. Interpretation of Rule 96ZP of the Central Excise Rules, 1944 regarding duty discharge.Analysis:1. The appeal was filed by the revenue under Section 35G of the Central Excise Act, 1944, questioning the entitlement of the manufacturer of final products to deemed credit under Notification No.58/97-CE when the inputs supplier had not paid the appropriate Central Excise duty. The assessee, under Compounded Levy Scheme, availed benefits of deemed credit under Rule 57A(6) of the Central Excise Rules, 1944. The department alleged that the inputs supplier did not discharge excise duty, leading to a Show Cause Notice for reversal of deemed credit and penal action against the assessee. However, the Order-in-Appeal set aside the department's order, citing a previous judgment that the department should pursue the supplier for duty liability, not the user of inputs claiming credit.2. The department's Order-in-Original dated 29.12.2003 was challenged by the assessee, and the subsequent Order-in-Appeal dated 30.9.2005 overturned the original order. The Appellate Authority and the Tribunal upheld the decision, emphasizing that the department should pursue the supplier for non-payment of excise duty rather than penalizing the user of inputs. The Tribunal's decision was based on the principle that the supplier's declaration of duty discharge on the invoices satisfies the conditions of the notification, as confirmed in previous judgments by the Hon'ble Tribunal and the Punjab & Haryana High Court.3. The interpretation of Rule 96ZP of the Central Excise Rules, 1944 played a crucial role in the judgment. The Tribunal affirmed the Appellate Authority's finding that the declaration by the input manufacturer regarding duty discharge under Rule 96ZP was valid and fulfilled the notification's requirements. The judgment relied on precedents to establish that the discharge of liability under Rule 96ZP equated to discharging duty liability under Section 3A of the Central Excise Act. The High Court dismissed the appeal, concluding that no substantial question of law arose due to the consistent findings of the lower authorities and the precedent set by previous judgments.This detailed analysis of the judgment provides insights into the legal intricacies surrounding the entitlement to deemed credit, the implications of the Compounded Levy Scheme, and the interpretation of relevant provisions under the Central Excise Act, 1944.